Euro zone bond yields dip as concern grows over second COVID wave


By Abhinav Ramnarayan

LONDON, Sept 24 (Reuters) - High-grade euro zone government bond yields fell across the board on Thursday on bets that the European Central Bank will keep the stimulus taps flowing as worries grow over the economic impact of a second wave of COVID-19 infections.

With a number of countries in Europe -- including the UK and Spain -- taking fresh measures to combat a surge in new coronavirus cases, policymakers around the world are expected to respond in kind.

In the United States, Federal Reserve officials have doubled down on efforts to convince investors they will keep monetary policy easy for years to allow unemployment to fall, emphasising that interest rates will stay near zero.

With a survey showing on Wednesday that the German services sector slipped back into contraction, bets are that European policymakers will similarly maintain a dovish stance. ECB Chief Economist Philip Lane is due to respond to questions on Twitter later on Thursday.

"The ECB’s pandemic emergency programme still has some 800 billion euros to spend and the regular asset purchase programme also continues to plod along," ING rates strategists said in a note. "That means there is little let up in the downward pressure on money market rates."

That said, Germany's IFO Institute Business Climate survey due at 0800 GMT is widely expected to show an improvement in business morale.

German 10-year bond yields DE10YT=RR , the benchmark for the bloc, dropped 1.8 basis points to -0.52%, not far from a 1-1/2 month low of -0.539% hit on Monday. The country's longer-dated 30-year debt DE30YT=RR dropped further into negative territory, and was down 2 bps at -0.07%.

The move was matched by other high-grade bonds, with Dutch and French borrowing costs also dropping between 1-2 bps. NL10YT=RR, FR10YT=RR

Market expectations of long term eurozone inflation was at its lowest level in nearly two months at 1.1544%, well below the ECB's target of just below 2%. EUIL5YF5Y=R

Later on Thursday, the ECB will publish the results of its latest allotment of cheap loans to banks, known as the targeted long term refinancing operations (TLTROs).

Also on Thursday, Italy is due to sell 10-year inflation-linked bonds through an auction.

(Reporting by Abhinav Ramnarayan Editing by Raissa Kasolowsky)

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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